Chapter 10 - The nature of international economic relations

Question 1

Imports

Answer 1

Transactions where Australian households and businesses purchase goods and services that are produced by another nation

Question 2

Exports

Answer 2

Australian-made good and services that are purchased by foreign households, businesses and governments.

Question 3

Balance of Payments (two major accounts)

Answer 3

The Current Account (CA)

The Capital and Financial Account (CAFA)

Question 4

Credit

Answer 4

Whenever money is received from foreign countries to Australia.

Shown as positive entries.

Question 5

Debit

Answer 5

Whenever money is outlaid from Australia to foreign countries.

Shown as negative entries.

Question 6

Surplus and Deficit

Answer 6

A surplus - where credits are greater than debits

A deficit - where debits are greater than credits

Question 7

The Current Account

Answer 7

1. Balance on Merchandise Trade
2. Net Services
3. Net Primary Incomes
4. Net Secondary Incomes

Question 8

CA - 1. Balance on Merchandise Trade

Answer 8

credits are exports of goods (coal, minerals, food)

debits are imports of goods (clothes, vehicles, machinery)

Question 9

CA - 2. Net Services

Answer 9

Exports of services such as education, tourism and insurance

Import of services such as entertainment and transport

Question 10

CA - 3. Net Primary Incomes

Answer 10

Credits is income from foreign investments

Debits is income earned by foreigners from Australian invesments

Question 11

CA - 4. Net Secondary Incomes

Answer 11

one-way movement of money (gifts, aid)

Question 12

The Capital and Financial Account

Answer 12

1. Capital Account (Capital Transfers & Non-produced, Non-financial assets)
2. Financial Account (Direct Invesment, Portfolio Invesment, Financial Derivatives, other invesments, reserve assets)

Question 13

CAFA - Capital Account

Answer 13

Capital Transfers - one way transaction such as a transfer of migrant assets

Non-produced, non-financial assets - copyrights, patents, distribution rights etc…

Question 14

CAFA - Financial Account

Answer 14

Direct Investment - Creation of assets or liabilities in a foreign country (more than 10% of a company)

Portfolio Investment - flow of capital for the purchase of shares, debt, or securities. (less than 10% of a company)

Financial Derivatives - stock options

Other Investment - borrowing and lending activities of Australian and International banks

Reserve Assets - transactions of the RBA and government transactions involving foreign currency and gold

Question 15

Export and Import (product type)

Answer 15

1. Primary Products (primary sector)
2. Manufactured Products (secondary sector)
3. Services (tertiary sector)

Question 16

1. Primary Products (primary sector)

Answer 16

sale of goods that are in their natural state.

Unprocessed: products have undergone minimal or no transformation

Processed: products add value to raw materials, but are still essentially in their natural state

Question 17

2. Manufactured Products (secondary sector)

Answer 17

traded goods are derived from primary products and involve different levels of processing

Simply Transformed Manufactures (STM): products consists mainly of basic metal manufactures, chemicals and other intermediate goods which will be used as inputs into other goods

Elaborately Transformed Manufactures (ETM): products generally seen as finished goods that are purchased by households, businesses and government.

Question 18

3. Services (tertiary sector)

Answer 18

Services are generally seen as non-tangibles where something is done for someone else and does not last beyond the transaction.

Question 19

Definition of a “floating exchange rate”

Answer 19

the value of the Australian dollar is determined by market forces.

It is the reflection of the demand for the supply of each currency in the foreign exchange market, relative to the demand for and supply of the Australian dollar.